What is Consideration in Contract Law?

Consideration is one of the ingredients of a legally binding contract under Australian contract law. Consideration is often thought of as comprising money, but there is more to the element of consideration than that.

Let's dive back in to the wonderful world of Australian contract law and take a look at what consideration means.

Consideration is the value exchanged by the person making an offer to the person who receives and accepts an offer. If there is no consideration (for instance, a promise is being made but nothing is received in return), there is no legally binding contract under Australian law. However, this issue can be overcome by using a Deed rather than a Contract (because a Deed is a legal agreement but does not require the element of consideration).

Here are the basic rules to consideration at law:

1. Consideration can be anything, provided it is not illegal

2. Consideration is the value offered by the person making the offer, as opposed to something stipulated by the person receiving an offer

3. Consideration only needs to be sufficient, not adequate (meaning, consideration does not need to be objectively considered to be of high enough value to pay for the promise that is made) (ref: Chappell v Nestle)

4. Consideration must be something that is provided at or after the time the offer is made, rather than something that has been exchanged before the offer is made

5. Carrying out an existing contractual obligation is not sufficient consideration

6. Carrying out an act or promising to do something is sufficient consideration

Consideration in Contract Law

Author: Farrah Motley, an Australian contract lawyer.